Right to Occupy / loss of RNRB / discount on value ?

Trusts Discussion
1

Testatrix made will granting right to occupy her home (not full Life Interest) to her cohabiting partner and then to her children as residuary beneficiaries. She was advised as to loss of RNRB and IHT consequences but this was her wish.

She has died. Her property values higher than anticipated and as there is no RNRB available there is a tax bill for her children to pick up. It seems harsh that her property must be taxed at open market value in these circumstances.

I had hoped that IHTM23201 might assist "Where the taxpayer asserts that: a vacant possession basis of valuation of property owned by the deceased is not appropriate because the property is occupied by somebody else … "

My principal advises that this would not apply to this situation - only where it related to a property other than the one which she and the cohabitant occupied. Has any contributor tested this?

As an alternative I have seen a past thread on this topic discussing the possibility of a fixed sum discount in these circumstances - equivalent to the costs of gaining possession. Again is this tested?

Comments and suggestions would be appreciated.

Caroline Coles
Buss Murton Law

2

With regard to the “alternative”, yes I have seen a number of occasions where a limited discount was given on this ground.

On each occasion, the person in occupation was not entitled to remain in occupation under the will, or was only one of a number of beneficiaries entitled to the residue.

Where, as in this case, the person in occupation is given a right to occupy under the terms of the will, I doubt HMRC would be willing to grant any such discount as there would appear no administrative reason for evicting them.

Whilst I anticipate the co-habiting partner will have been in occupation as a licensee at will, had the deceased given any indication that they might have a stronger right of occupation which may have enabled them to continue in occupation even if they had not been given a testamentary right of occupation?

Paul Saunders